Catholic Diocese Bankruptcies Drag On as Insurers Fight Rising Costs of Sex-Abuse Claims

Wall Street Journal [New York NY]

August 4, 2022

By Soma Biswas

More victims have come forward after New York, New Jersey and other states relaxed rules on abuse suits, and they are seeking bigger settlements, leading to tensions between insurers on one side and their diocese clients and claimants on the other

Insurers are fighting against sex-abuse victims’ demands for more compensation in the bankruptcies of several large Catholic dioceses, as both the number of claimants and the proposed payouts have grown.

The standoff is slowing the dioceses’ efforts to emerge from chapter 11. Historically, most settlements in such bankruptcies have received support from the diocese, its insurers and abuse victims, said lawyer Jason Amala, who has represented victims of childhood sex abuse in cases involving the Catholic Church and the Boy Scouts of America, among others.

What is different now, lawyers involved in diocese cases said, is that many more victims have come forward after more than a dozen states in the past few years relaxed their statutes of limitations on sex-abuse claims, opening temporary look-back windows during which abuse victims could sue even if the abuse happened decades ago.

In addition, victims are seeking bigger settlements than in earlier diocese bankruptcies, prompting insurers to fight harder against covering abuse liabilities at these higher levels, lawyers involved in diocese cases said.

Sex-abuse lawsuits against the Catholic Church have tipped dozens of dioceses into bankruptcy over the past two decades as they sought to protect church assets from abuse claimants and resolve large numbers of individual claims at once through chapter 11 plans.

New York and New Jersey both opened two-year look-back windows for sex-abuse victims in 2019, unleashing waves of abuse litigation in those states. Since then, four dioceses in New York have filed for bankruptcy—Buffalo, Rochester, Syracuse and Rockville Centre on Long Island—as has the diocese in Camden, N.J.

Tensions between insurers and victims’ representatives have dominated most of these cases, driving up legal fees and prolonging the dioceses’ stints in bankruptcy, lawyers involved in the cases said.

“We are not seeing meaningful settlement negotiations across the board in New York or New Jersey,” said Mr. Amala, who represents victims in the Camden bankruptcy and some of the New York diocese bankruptcies filed since 2019.

Three of the five New York and New Jersey cases have passed the two-year mark, while two are approaching that anniversary in October. About half the 15 bankruptcy cases for U.S. dioceses that were resolved by 2018—before the latest opening of look-back windows—took less than two years to conclude, while the rest took longer, according to data gathered by Marie Reilly, a professor of bankruptcy law at Pennsylvania State University.

In most chapter 11 bankruptcies of U.S. dioceses and religious orders resolved by 2018, fewer than 200 people who said they were sexually abused by clergy had sought compensation, court records show.

In contrast, nearly 1,000 individuals have filed sex-abuse claims against the Diocese of Buffalo since it entered bankruptcy in 2020, double the highest number of claims filed against a single U.S. diocese before 2018, according to court papers filed by victims’ lawyers. The Diocese of Rockville Centre, which covers most of suburban Long Island and which also filed for chapter 11 in 2020, has 700 claimants.

The Diocese of Camden, which filed for bankruptcy in 2020, in April agreed to pay victims more than $87 million from its own coffers, pending bankruptcy-court approval. In a surprise move, the diocese scrapped a settlement it had proposed earlier—under which its insurers would have put in $30 million and the diocese itself would have put in $60 million—after plaintiffs’ lawyers rejected the deal, saying the total compensation fund was too small. Under the new deal, the diocese plans to turn over its insurance policies to a victims’ compensation trust that will pursue litigation to seek additional funds from the insurers.

The Camden Diocese’s insurers criticized the move, saying in court papers that the chapter 11 plan treats them unfairly, in part because abuse claims would be vetted by the compensation trust, which the insurers see as plaintiff-friendly. If Camden’s plan wins court approval, it would put the insurers at a disadvantage in any future coverage disputes with the Camden sex-abuse claimants, the insurers said in court filings. A trial on the bankruptcy plan is scheduled for this month.

Outside of bankruptcy, insurers would be allowed to test the evidence of each claimant’s abuse allegations in the tort system, but no similar mechanism would be available to them under Camden’s plan, the insurers said in court filings. The settlement trust would put the burden of proof on the insurers rather than on victims, as would be the case in state courts, where such lawsuits are normally filed, the insurers argued in court papers.

Camden’s restructuring plan also proposed to pay plaintiffs $2,500 apiece with no questions asked if they agreed not to seek additional compensation. The insurers in court papers called the payments a “vote buying” effort to win victims’ support for the settlement plan.

The Camden Diocese and its lawyers didn’t return calls seeking comment.

Lawyers for London Market Insurers, one of the biggest policy providers for the Camden Diocese, also didn’t return calls seeking comment. A spokesperson for Century Indemnity Co., another insurer for the Camden Diocese, declined to comment.

In court papers, the Camden Diocese and lawyers for abuse victims have argued the insurers don’t have the standing to oppose their plan.

Insurers for the Camden Diocese have criticized the fees that victims’ lawyers stand to collect, describing them as excessive and illegal under New Jersey law. The insurers in court papers pointed to retention agreements entitling some plaintiffs’ firms to 40% of the compensation awarded to each victim. New Jersey law caps fees for personal-injury lawyers, for example to 33% on the first $750,000 recovered, 30% on the next $750,000, and so on, with the caps getting smaller as the awards get bigger.

In response, law firms representing plaintiffs said in court filings that their retainers with victims specify their fees would be capped by applicable state laws, and one of the firms said that it would add language to some retention agreements specifying its fees would be capped based on New Jersey law.

The Diocese of Rochester and its insurers have proposed to put $107 million and $40.5 million, respectively, toward a settlement fund and have been united in resisting victims’ demands for more compensation.

Negotiations for the Diocese of Rockville Centre, the nation’s largest to file for bankruptcy, have dragged on for nearly two years since its bankruptcy filing, with no agreement with its insurers and no compensation plan on file.

The dioceses in Rockville Centre and Rochester declined to comment. Representatives for the Diocese of Buffalo didn’t return calls seeking comment.

Current settlement proposals in the Camden and Rochester cases average out to roughly $290,000 per victim—slightly higher than the $288,000 average payout across the 14 dioceses that had gone through bankruptcy as of early 2018, according to a study by Prof. Reilly of Penn State.

In both the Camden and Rochester cases, the per-victim compensation is likely to go up as Camden victims get additional money from insurers and as Rochester continues to negotiate with abuse victims on a settlement that is acceptable to them, lawyers involved in the cases said. Chapter 11 plans covering claims of sexual abuse generally require strong support from victims to win court approval.

Most of the settlement funds set up in diocese bankruptcies by early 2018 came out to well under $100 million, Prof. Reilly said. Insurers have typically contributed the lion’s share of settlement money in these cases, with the rest coming from cash, properties and other assets of the dioceses.

Plaintiffs’ lawyers have said that more claimants have sued in New York and New Jersey because of greater awareness of childhood sex abuse and increasing social acceptance of victims coming forward. Insurers have pointed to advertising campaigns by national plaintiffs’ firms as a factor.

Spending on television ads targeting victims of clergy abuse totaled $13.5 million between 2016 and 2021, according to X Ante, a research firm that tracks data on ad spending by law firms representing personal-injury plaintiffs. Older diocese cases largely featured local lawyers, each representing a few victims.

The top five sponsors of clergy-abuse ads during that time, according to X Ante data, included Slater Slater Schulman LLP, which has offices in the New York City area, Pennsylvania and Los Angeles, and Jeff Anderson & Associates PA, based in St. Paul, Minn. The two law firms represent abuse victims in the Boy Scouts chapter 11 case and several diocesan cases.

“You call it advertising. I call it outreach,” Mr. Anderson said. “And I don’t apologize for it.”

Since New York, New Jersey and other states started allowing otherwise-barred abuse claims to go forward, “It is imperative that survivors of sexual assault be informed of their rights,” said Adam Slater, a founding partner of Slater Slater Schulman.

Payments related to abuse litigation could tip more dioceses into chapter 11. The Diocese of Albany isn’t in bankruptcy, but faces lawsuits from more than 400 victims, some of whom recently criticized its proposal to reach individual settlements without a chapter 11 filing.

The Albany Diocese is moving ahead with mediation with plaintiffs’ attorneys and is committed to resolving sex-abuse claims, a diocese spokeswoman said.

Write to Soma Biswas at